The rise of easy to use apps have allowed more and more people to take advantage of the sharing economy. Countless people supplement their current income and a few even leave their steady paychecks behind and work for themselves, on their own schedule, by driving for Uber or renting their home through Airbnb. This is referred to as the sharing economy, or gig economy. While this can be liberating for some, there are important tax consequences that are often overlooked or misunderstood.

When you start participating in the sharing economy, you have started your own business and are an independent contractor of the app developer (Uber/Airbnb). With that comes additional filing requirements and often additional taxes. The most important, or largest new tax obligation, will likely be self-employment taxes. Self-employment tax is currently 15.3% of your net self-employment income up to $127,500. For a more in depth look at self-employment taxes please see our article “Self-Employment Taxes Explained.” Keep in mind that this 15.3% tax is in addition to the regular income tax.

The income that you receive from the shared economy is taxable. This is the case even if you do not receive a 1099-MISC, or 1099-K for electronic payments, or only accept cash. You are also able to deduct from your taxable income, ordinary and necessary business expenses to arrive at net income. This is the amount that you pay taxes on.

Ordinary and necessary business expenses will be different for the type of work you are doing. Each segment of the sharing economy has its own attributes. For example, depreciation, or the reduction in the value of an asset, will be very important to someone utilizing Airbnb. Not so much for somebody driving for Uber. The exact opposite will be true of the mileage deduction. It is important to be aware of which tax deductions you can, and should, take advantage of. It is equally important to understand the record keeping requirements to document those expenses.

If you are profitable in your gig economy venture, you may be required to make estimated tax payments throughout the year. When you receive a paycheck, federal and state taxes are withheld from each check. When participating in the gig economy you do not receive a paycheck, and therefore must send in your estimated tax payments separately. These payments are due quarterly.

It may seem like you are responsible for all for all of the same things as an ordinary business. That's because you are! The IRS does not see your gig economy business any different than a property management company or taxi service provider. It is important to be aware of each businesses characteristics and requirements to make sure there are no surprises when it is time to file your taxes. For more information please contact your trusted tax advisor.

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